Energy producers would need to spend at least $30.5 billion on power stations that use gas and other clean technologies over the next decade to comply with even a modest emissions reduction target.
New modelling reveals that the scale of the spending could rival the rapid electrification across the nation that took place after World War II.
The modelling, to be released at a business forum in Canberra today, also finds that a modest target of reducing greenhouse emissions by 5 per cent of 2000 levels by 2020 would slash the earnings of coal-fired power stations by $11bn and force the shutdown of 10 per cent of the nation’s electricity generating capacity.
Details of the modelling came as Julia Gillard branded Tony Abbott a climate change “denier” who was trying to appeal to sceptics as she sought to capitalise on an improvement in the government’s Newspoll standing.
The attack in a fiery question time yesterday came as the Opposition Leader questioned the Prime Minister’s truthfulness over her decision to break her pre-election pledge not to impose a carbon tax.
And at the National Press Club, BlueScope Steel chairman Graham Kraehe warned that the proposed compensation for emissions-intensive trade-exposed industries, which would be forced to compete with imports from countries that did not have a carbon tax, would be like putting “a Band-Aid on a bullet wound”.
Mr Kraehe, who is also a member of the Reserve Bank board, said business had lost trust in the Gillard government and the consultation process for the current carbon tax negotiations had been “appalling”.
The warning came as The Australian learned that senior industry figures believe Climate Change Minister Greg Combet has ruled out taking a sectoral approach to the introduction of a carbon pricing scheme, which means it would be introduced on a widespread basis across the economy.
And, despite climate change adviser Ross Garnaut’s support for using Kevin Rudd’s carbon pollution reduction scheme as a starting point for transitional industry assistance, independent MP Tony Windsor is understood to have doubts. He is believed to have told industry figures he does not support a “rehash” of the CPRS assistance.
The debate rages as Mr Combet and Energy Minister Martin Ferguson prepare to begin negotiations on the shape of the compensation package with some of the nation’s most powerful company executives tomorrow. They include: Paul O’Malley from BlueScope Steel; Don Voelte from Woodside; David Peever from Rio Tinto; Anne Pickard from Shell; and Hubie Van Dalsen from BHP Billiton.
A forum in Canberra today organised by the Australian Industry Greenhouse Network and the Business Council of Australia will be told that the reliability of Australia’s energy system could be under threat over the period to 2020, as coal-fired power stations close before enough replacements are built and maintenance work is reduced or even stopped.
Even a carbon price of $20 a tonne of emissions was likely to lead to some coal power stations defaulting on their debts and handing the assets over to their financiers. AIGN chief executive Michael Hitchens said that if some investors in power stations made big losses they would not invest in new capacity and new investors would invest only if there were higher returns.
“This would lead to even higher electricity prices than are needed,” Mr Hitchens said.
The findings will put pressure on the Prime Minister to stare down the Greens, who are opposed to compensating electricity generators for putting a price on carbon.
Ms Gillard plans to introduce a fixed price on each tonne of carbon emissions from July 1 next year, but the level of compensation for industry and households remains a key sticking point between Labor and the Greens.
Under Mr Rudd’s CPRS, the power generators were set to receive compensation of $7.3bn over 10 years, but the energy industry complained this fell well short of being sufficient.
The modelling by consultancy ACIL Tasman estimates that about $10.5bn in spending would be needed for gas-fired generating plant under an emissions pricing regime.
A further $20bn would be needed to comply with the government’s renewable energy target.
Further spending still would be needed for gas pipelines and electrical transmission systems.
Rod Sims, an expert adviser to the multi-party climate change committee will use today’s forum to call for the carbon price to be substituted for generous subsidies for solar panels and other high-cost greenhouse reduction measures.
Mr Sims, also a director of Port Jackson Partners, will argue that while measures such as solar panels are appealing they are very expensive, are insufficient to meet emissions reductions targets and offer no compensation.
The ACIL Tasman paper argues that compensation would not necessarily overcome the potential for electricity market disruption. But it could be used to provide incentives to overcome risks to the reliability of energy supplies, such as tying compensation to requirements that provide sufficient warning that power plants will be shut down.
“While ultimately government must make the decision as to whether compensation is warranted to support the ongoing effective and efficient operation of electricity markets, in doing so they must be cognisant of the central role that electricity plays in the everyday lives of all Australians,” the paper says.
It warns that any policy must also take account of “the potential disruption to those everyday lives if electricity supplies are subject to increased price volatility and in the worst case disrupted.”
ACIL Tasman chief executive Paul Hyslop, who will present the paper, said the modelling was based on the CPRS because, to get a 5 per cent reduction by 2020, Labor’s stated target, would require similar carbon pricing to that proposed in Mr Rudd’s model.
The firm’s projections also estimate that wholesale electricity prices would rise by about $30 a megawatt hour by 2020 to meet a 5 per cent cut in emissions.
This would translate into higher retail electricity prices for households, particularly for off-peak power.
Because big industrial energy users use a lot of off-peak power, they face a “significantly” higher cost base.
